PARIS — The first half showed little mercy for European luxury firms.

A quartet of luxury companies — Hermès, Bulgari, IT Holding and Tod’s — reported results for the first half of 2003 on Thursday. With the exception of Bulgari, all reported declines in profitability go with sales numbers disclosed earlier.

In most cases, the second-half outlook exceeded first-half performance as improving sales over the summer have left executives with heightened confidence for the rest of the year.


Citing a “difficult environment,” Hermès International said net profits fell 12.2 percent to $94.5 million in the first half ended June 30, versus $107.6 million in last year’s first half.

However, citing improvements in July and August, the French luxury firm said it expects sales to grow on a constant exchange basis in the second half.

All dollar figures have been converted from the euro at current exchange.

The results were slightly below expectations of luxury analysts, who were awaiting further guidance from Hermès management at a meeting Thursday night.

Operating profits fell 12.4 percent to $147.5 million, or 131.5 million euros. At constant exchange rates, net profits were up 5.1 percent, Hermès said.

In preview reports, analysts were on the alert for any margin erosion. On Thursday, Hermès said net margins in the half fell to 15.3 percent from a record high of 16.4 percent a year ago.

As reported, second-quarter sales at Hermès slipped 9.2 percent to $290.4 million from $319.8 million a year ago because of a dramatic drop in tourism in Europe and negative currency effects.

By region, Hermès highlighted strength in the U.S., where sales were up 7 percent in the half, and Asia, which showed a 13 percent increase.

In the half, sales were down 6.1 percent to $620.2 million versus $660.6 million a year ago, as reported. At constant exchange, sales advanced 3.3 percent.

The French group gave no earnings guidance, but indicated it would continue to invest in increasing its production capacity and improving its store network with six new locations and 10 refurbishments. In the first half, Hermès spent $50.5 million, or 45 million euros, on such investments, including a new logistics platform. Five new locations bowed, including Hawaii and San Francisco, while five were renovated.Shares of Hermès International inched up 0.4 percent to close at $157, or 140 euros, on the Paris Bourse.


While Bulgari’s first-half profits grew at a double-digit pace and the outlook for the remainder of the year was positive, second-quarter profits were flat.

Still, Bulgari chief executive Francesco Trapani reiterated the optimism he’d expressed earlier about the rest of the year.

“If nothing extremely negative happens between now and the end of the year, I think Bulgari will be able to reach its objectives of growth, both in terms of revenue and profit,” Trapani said in a phone interview.

Net profit for the six months ending June 30 grew 10.9 percent to $28 million, or 25 million euros, from $25.4 million, or 22.6 million euros, the year before. Bulgari did not break down figures for the second quarter, but subtracting numbers from the first quarter shows that second-quarter net profit was flat at $15.3 million, or 13.6 million euros.

Operating profit in the first six months of the year grew 6.4 percent to $39.4 million, or 35.1 million euros, from $37 million, or 33 million euros.

The Italian firm’s revenues were affected substantially by currency fluctuation. As reported in July, sales for the half dipped 2.4 percent to $370.2 million, or 330.1 million euros, from $379.1 million, or 338 million euros, the year before. Bulgari said at constant exchange, they would have risen 4 percent.

In a research note, Dana Cohen, analyst at Banc of America Securities, pointed out that the firm beat consensus estimates due to gross margin expansion of 210 basis points and that “there is still room for gross margin improvement and cost controls.”

“Bulgari expects to hit its 2003 target of 5 to 6 percent sales growth barring any significant negative downturn” in the second half, Cohen wrote. “We are a bit more conservative and are expecting a 3 percent increase.

“However, a number of luxury companies, including Bulgari, reported today, stating the trend has improved in July and August, which bodes well for H2 numbers.”

IT HOLDINGIT Holding reported first-half pretax profits dropped by more than two-thirds to $1.4 million, or 1.3 million euros, from $5.1 million, or 4.6 million euros, in the same period last year.

Earnings before interest, taxes and amortization grew 17.9 percent to $29.4 million, or 26.3 million euros.

The company attributed the profit drop to costs from the acquisition of Gianfranco Ferré SpA, finalized in June 2002, and to a $224.2 million, or 200 million euro, bond issued in May 2002, which helped finance the acquisition of Ferré.

In addition to Gianfranco Ferré, IT is the parent of Ittierre. As reported, it is believed to be in negotiations to sell its Romeo Gigli operation to Go & Create Investment.

Sales grew 2 percent to $357.4 million, or 318.9 million euros, from $350.6 million, or 312.8 million euros, in the same period last year. At constant exchange rates, IT Holding said sales would have grown 8 percent.

Gross operating profits grew 16 percent to $44.7 million, or 39.9 million euros. IT Holding said the growth was helped by a “recovery of operating efficiency and an improved product mix,”which balanced the weight of operating costs connected to the new strategic plans for the Ferré brand. In June, the designer launched a young collection for men and women called GF Ferré. The company is expanding Ferré’s business in markets such as the U.S. and Japan, streamlining its distribution while opening new stores, and investing in a variety of new products.

GF Ferré, produced by Ittierre, replaced the Gieffeffe and Ferré Jeans lines, previously produced under license from Marzotto, in IT’s brand stable.

Sales of the Ferré brand grew 3.2 percent to $65.1 million, or 58.1 million euros, during the first half. IT said additional sales derived from licenses amounted to $67.2 million, or 60 million euros.

In June, as reported, IT Holding also created Ittierre Accessories, a new firm dedicated to the manufacturing of accessories for all Ittierre lines: Versus, Versace Jeans Couture, D&G, Exté, Just Cavalli and GF Ferré.

IT Holding’s president and chief executive officer, Tonino Perna, said in a statement that he was pleased with the results, considering “the difficult macroeconomic context.”He noted, “The excellence of these results is particularly evident, considering the costs sustained for the acquisition and the consolidation [of Ferré]. I am confident the group has the right requirements to continue its growth this year with sales in line with the first six months.”

Ready-to-wear and accessories grew 2.9 percent and accounted for 86.6 percent of sales. Eyewear dropped 14.7 percent and accounted for 9.1 percent of sales.

As of June 30, the group’s debt totaled $134.8 million, or 120.3 million euros, compared with $110 million, or 98.2 million euros, on Dec. 31, 2002.


Tod’s saw its profitability in the first half of the year suffer as it made investments in its retail network and production facilities.

Net profit for the six months ended June 30 dropped 14.9 percent to $12.2 million, or 10.8 million euros, from $14.3 million, or 12.7 million euros. The company did not break down second-quarter numbers, but subtracting figures from the first quarter from those of the half produces a 43.8 percent drop in second-quarter net profit to $2.8 million, or 2.5 million euros.

As reported in July, revenues for the six months rose 3.8 percent to $197.1 million, or 175.7 million euros, from $189.9 million, or 169.3 million euros.

“Annualizing half-year results would be misleading,” Tod’s said in a statement. “In fact, cost and revenue flows are not aligned on a monthly basis, this due to the retail network expansion now under way and to the particular nature of the business.”

Tod’s said net investments for the first half totaled $26.6 million, or 23.7 million euros. Of that sum, $12.1 million, or 10.8 million euros, went toward the expansion of the retail network. The remaining $14.5 million, or 12.9 million euros, includes expenditures for building a new production plant and the refurbishment and replacement of other manufacturing facilities.

Echoing the sentiments of nearly all European firms with substantial amounts of business outside the continent, the company said profits also suffered because of unfavorable currency exchange rates.

Earnings before interest and taxes for the half dropped 23.5 percent to $20 million, or 17.8 million euros, in the half from $26.1 million, or 23.3 million euros, in the comparable 2002 period, but Tod’s said this year’s figure would have been boosted $3.9 million, or 3.5 million euros, at constant exchange rates.

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